This article will highlight different options, ideas, and strategies to minimize potential future probate fees and review what a living trust is and how it can be used.
What is Probate?
Probate is the legal process of validating a deceased person's will and distributing their assets according to the terms of the will or, if there is no will, according to the laws of the province in which the deceased person lived. The process can be complex, time-consuming, and costly.
What are probate fees?
The probate fees in Ontario are based on the value of the deceased person's assets *that are subject to probate*. The fees are calculated as a percentage of the value of the assets and are set by the Ontario government. Though probate fees are now officially known as the “estate administration tax” (EAT) in Ontario.
For estates less than $50,000 the fee is fee 0.5% or $5.00 per $1,000 of estate value.
However, for estates greater than $50,000 the fee is 1.5% or $15.00 per $1,000 of estate value.
It's important to note that there are also disbursements and legal fees that are not included in the probate fee and these can vary depending on the complexity of the estate.
What are the best was to avoid probate fees?
Some of the best was to avoid probate fees are through joint ownership, beneficiary designations, living trusts, having a POA, having a will, and gifting assets. See below.
Joint Ownership
When property is held jointly with another person, such as in a bank account, a piece of real estate, or an investment, it automatically passes to the surviving joint owner(s) following the death of one of the joint owners, avoiding the need for probate.
Beneficiary Designations
You can designate a beneficiary to receive certain financial assets in the event that you pass away. Examples include life insurance policies, segregated funds, RRSPs, and TFSAs. There won't be a probate process for these assets.
Living Trusts
A living trust is a legal arrangement in which property is given to a trustee, who keeps and maintains the property for the benefit of the trust's beneficiaries. Using living trusts can help you avoid probate and guarantee that your assets are dispersed in the way you want them to.
Asset Gifts
Giving away your assets while you're still living can also assist you avoid probate. Before you pass away, you can prevent the need for probate by transferring assets to beneficiaries. Prior to donating assets, it is advisable to speak with a financial advisor or an attorney because there can be tax consequences for both the giver and the recipient.
What are Living Trusts?
A living trust is a legal arrangement where assets are transferred to a trustee, who holds and manages the assets for the benefit of the trust's beneficiaries. Living trusts can be used to avoid probate and ensure that assets are distributed according to your wishes.
In Ontario, there are different types of living trusts, but the most common one is the inter vivos trust (also known as a revocable trust) which is created during the lifetime of the trust maker (also known as the grantor or settlor). The trust maker can act as the trustee, retain control of the assets, and can change the terms of the trust or revoke it at any time.
An inter vivos trust can be used for various purposes such as:
Asset protection: By transferring assets to a trust, the assets are protected from creditors, lawsuits, and other legal claims against the trust maker.
Estate planning: A living trust can be used to ensure that assets are distributed according to the trust maker's wishes after their death, without the need for probate.
Tax planning: A living trust can be used to minimize taxes on the trust maker's estate and to take advantage of certain tax benefits.
Special needs planning: A living trust can be used to provide for a family member with special needs without disqualifying them from government benefits.
Here’s an example to better understand an inter vivos trust:
John, a retired man, wants to guarantee that his assets are safeguarded and that they will be dispersed in accordance with his intentions after his passing. Further, he wants to maximize tax deductions and benefits for his estate.
John seeks the advice of both a lawyer and financial advisor who suggests that he create an inter vivos trust. John transfers the trust ownership of his property, his accounts, and his investments. He appoints himself the trustee and keeps control of the assets. Additionally, he designates his kids as the trust's beneficiaries.
John continues to live in his home and run his investments and bank account as usual while he is still alive. At any point, he has the right to modify or revoke the trust.
The trust's assets won't need to go through the probate process after John passes away. The assets will be distributed by the trustee in accordance with the trust's provisions, which may include providing for John's children and other beneficiaries. The trust's assets will also be shielded against litigation, creditor claims, and other legal actions brought against John's estate.
In order to determine whether an inter vivos trust is the best option for your particular situation and to make sure that the trust is set up and administered properly, it is always best to consult with a lawyer and a financial advisor who are experienced in estate planning. It is important to keep in mind that this is a simplified example and that living trusts can be complex legal instruments.
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Gianluca Folino
Financial Advisor, Manulife Securities Incorporated
Life Insurance Advisor, Manulife Securities Insurance Inc.
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